Yahoo sees several flaws in $2.7b Mexico ruling

Last updated 15:08 04/12/2012

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Yahoo believes it has "numerous" grounds to appeal a Mexico City civil court's US$2.7 billion preliminary judgement against the company, including both errors in procedure and in application of law, a person familiar with the matter told Reuters on Monday.

The ruling in the case, which involves allegations of breach of contract related to an online yellow pages listings service, was made by the 49th Civil Court of the Federal District of Mexico City, Yahoo announced on Friday.

The lawsuit was brought by Worldwide Directories SA de CV and Ideas Interactivas SA de CV against Yahoo and Yahoo de Mexico, Yahoo said.

The plaintiffs could not be reached for comment.

The details of the suit remained unclear on Monday. Documents from local courts in Mexico are not available for public consultation. Yahoo declined to comment.

Yahoo signed a commercial relationship with the two companies in 2002, the person familiar with the matter said. Yahoo terminated the relationship with the companies in 2009, the person noted.

Yahoo's appeal is expected to be heard by a panel of three judges in a superior court in Mexico City, the person said who was not authorized to speak publicly on the matter. It was not clear when Yahoo might file its appeal.

The case has perplexed many investors and tech-industry observers since Yahoo disclosed it on Friday, particularly given the large value of the "non-final" judgement.

Yahoo's most recent 10Q filing, which lists major ongoing legal proceedings, makes no mention of the lawsuit.

"We believe the US$2.7 billion figure appears high based on the seemingly small size of Yahoo's business in Mexico, but we believe shares could trade off modestly on the news," wrote JP Morgan analyst Doug Anmuth in a note to investors following Friday's announcement.

"It's not clear how the Mexican court arrived at the US$2.7 billion figure, but it would represent 40 percent of our projected 2012 year-end cash balance for Yahoo," and equate to about $2.30 per share, he wrote.